The New Zealand dollar rose after Reserve Bank Governor Graeme Wheeler said he would raise interest rates more aggressively if mortgage lending limits introduced this month don't slow rising house prices.
The kiwi jumped to 83.10 US cents at 8am in Wellington, from 82.66 cents at 7am and 82.21 cents at 5pm yesterday. The trade-weighted index rose to 77.10 at 8am from 76.70 at 7am and 76.44 yesterday.
Wheeler said the central bank has introduced loan-to-value ratio limits on low equity mortgage lending this month to curb rapidly rising house prices in Auckland and Christchurch. The bank expects to increase the 2.5 per cent official cash rate by 2 per cent from 2014 to the beginning of 2016 but would make larger increases should the LVR limits fail to slow house price inflation, Wheeler said today.
"If house prices don't respond to the new LVR limits then the Reserve Bank's OCR forecast will need to rise," said Imre Speizer, markets strategist at Westpac Banking Corp.
"That could push market interest rates higher and in that turn would push the kiwi US exchange rate higher. The higher the yield the more attractive the currency from a carry point of view."